KARACHI (December 02 2002) : The oil refineries listed on the Karachi Stock Exchange (KSE) in the first quarter ended September 31, 2002 showed an unprecedented growth in their profits after the government introduced the Tariff Protection Formula, boosting their margins.

According to a report prepared by Humaira Zaheer, research analyst at IP Securities, said the exploration & production (E&P) companies in FY02 showed healthy profits after improvement in their margins on account of the stabilised crude oil prices in the region.

However, this rationale was further backed with the introduction of the Tariff Protection Formula (effective from July 1, 2001), which in 1Q-FY03 also continued to impact the earning base, ensuing in favourable margins for the refiners.

The E&P sector on the KSE remained buoyant during 1Q-FY03. Throughput also increased by as much as seven percent to around 15 million barrels during 1Q-FY03 compared to the corresponding period last year.

During 1Q-FY03, the Pakistan Refinery Ltd (PRL) showed an outstanding performance by posting a PAT of Rs 123 million (EPS: Rs 6.15), 2359 percent higher than the same period last year (1Q-FY02 PAT: Rs 5 million; EPS: Rs 0.25 )

During the period under review, PRL's crude throughput recorded an increase of eight percent and sales surged by seven percent compared to the corresponding period last year.

In addition to this, the cost margins also improved by three percent resulting in handsome returns.

Next in the queue stood the Attock Refinery Ltd (ARL) whose net income pitched to Rs 61 million (EPS: Rs 2.31) in 1Q-FY03 against Rs 7 million (EPS: Rs 0.56) in 1Q-FY02 (YoY: +737 percent). The ARL remained successful in curtailing its financial expenses by 66 percent while the other income swelled by 64 percent which helped the company earn hefty profits.

During first quarter of FY03, the net income of the National Refinery Ltd (NRL) and the Pakistan Oilfields Ltd (POL) showed a corresponding increase by 11 percent and four percent against 1Q-FY02 to Rs 207 million (EPS: Rs 3.11) and Rs 673 million (EPS: Rs 8.19) respectively as a result of positives from the Tariff Protection Formula.

Humaira explained the Tariff Protection Formula, saying the government introduced the measure to improve the profitability of the refining sector under which refineries are allowed deemed duty in the ex-refinery price of certain products like HSD 10 percent and five percent on kerosene and JP-4 each with a one percent surcharge available on the last two mentioned products. Subsequent to this change, the minimum guaranteed rate of return at 10 percent of the share capital has also been abolished.

The refineries, however, will not be allowed to distribute net profits in excess of 50 percent of their paid-up capital, and will keep the excess, if any, in reserves to offset against any future loss and for the upgrading/expansion of their respective facilities.

Since January 2002, all the four E&P stocks have performed significantly well.

The PRL scrip has appreciated by 365 percent and is currently trading at Rs 107 (January 1, 02 price: Rs 23) followed by the POL and the NRL which appreciated by 108 percent each. While ARL scrip has improved by 93 percent since the beginning of the current year.

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